Sodastream Ltd v Electronics (Broken Hill) Pty Ltd
[1985] FCA 230
•07 JUNE 1985
Re: SODASTREAM LIMITED and SODASTREAM AUSTRALIA PTY. LIMITED
And: ELECTRONICS (BROKEN HILL) PTY LIMITED and RONALD JOHN WALSH
No. G 367 of 1984
Trade Practices (Restrictive)
(1985) ATPR para 40 - 572
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES REGISTRY
GENERAL DIVISION
Beaumont J.
CATCHWORDS
Trade Practices (Restrictive) - exclusive dealing - Trade Practices Act, 1974, s.47 - s.47(10) "substantial lessening of competition" - onus of proof.
T.P.C. v. Guests' Garage Pty. Limited (1976) 26 FLR 433
Evidence - onus of proof.
HEARING
SYDNEY
#DATE 7:6:1985
ORDER
Order that para.20 of the defence and paras.3, 4 and 5 of the cross-claim be struck out.
Grant liberty to the respondents and cross-claimant to amend their defence and its cross-claim accordingly.
Order that the respondents and cross-claimant pay the applicants' costs of this application.
Note: Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.
JUDGE1
By their defence and by its cross-claim the respondents and cross-claimant respectively allege a contravention by the applicants and cross-respondent of s.47 of the Trade Practices Act, 1974 ("the Act"). In those pleadings, no allegation is made that the exclusive dealing alleged had the purpose or had or is likely to have the effect of substantially lessening competition (see s.47(10)). The applicants and cross-respondent ("the applicant") now move to strike out those pleadings on the ground that such an allegation is an essential ingredient of a contravention of s.47. In short, the applicant says that the party asserting a contravention of s.47 bears the onus of establishing the matters specified in s.47(10). For their part, the respondents and cross-claimant ("the respondent") accept that, whilst no contravention will be held to have occurred if it is established that there was no substantial lessening of competition, the provisions of s.47(l0) are in the nature of an exception to a general prohibition on exclusive dealing in respect of which exception the burden of proof lies upon the applicant.
Since much of the argument in the application centred on the reasoning and decision of the Australian Industrial Court (Dunphy, J., Sweeney and Evatt, JJ.) in Trade Practices Commission v. Guests' Garage Pty. Limited (1976) 26 FLR 433 which was concerned with the onus of proof in a related but earlier provision of the Act, it will be necessary to recite the history of the relevant legislation. As it stood at the time of the decision in Guest, s.45(2) of the Act prohibited, inter alia, the making of an arrangement or the entering into an understanding to the extent that such arrangement or understanding was in restraint of trade. Section 45(3) to (8) dealt with situations where the section did not apply. By s.45(3) it was provided that a contract having the purpose or effect of fixing the price for goods or services was in restraint of trade for the purposes of the Act if the restraint had such a slight effect on competition as to be insignificant. By s.45(4) it was provided that a contract that was not of the kind referred to in s.45(3) was not in restraint of trade or commerce for the purposes of the Act unless the restraint had or was likely to have a significant effect on competition. It was held in Guest that the defendants bore the onus of establishing the matters specified in s.45(3) or (4). The Court said (at p.438):
"... looking at the substance of the section, it seems that it expresses a general principle of liability which is intended to apply generally, namely that the contract, arrangement or understanding is in restraint of trade or commerce. It then expresses an exculpation, justification, excuse or exclusion by reason of additional or special facts, namely that the restraint has such a slight effect on competition as to be insignificant or that the restraint does not have a significant effect on competition.
On this view, the onus rests upon the defendants seeking to rely on these additional facts.
In the argument it was put that sub-ss.
(5), (6) and (7) of s. 45 were not of the same nature as sub-ss. (3) and (4) but were exceptions and qualifications as to which the defendants carried the onus.
The interpretation we propose seems to us to give some degree of harmony to the section and is entirely consistent with the common law approach that once a contract in restraint of trade is proved, it lies on the defendant to establish its reasonableness."
(At common law any contractual restraint of trade is prima facie unlawful and invalid: it is against the policy of the law to enforce such restraints of trade except in cases where there are special circumstances to justify them (see Lindner v. Murdock's Garage (1950) 83 CLR 629 per Kitto, J. at p 653). The onus of establishing that the restraint is reasonable as between the parties rests upon the party seeking to enforce it. If, notwithstanding its reasonableness, a party seeks to challenge the validity of a restraint on the ground that it is contrary to the public interest, he bears the onus of establishing those circumstances (see Herbert Morris, Limited v. Saxelby (1916) AC 688 per Lord Atkinson at p 700).)
At the time of Guest's case, the structure of s.47 was as follows. By s.47(1), it was provided that, subject to the section, a corporation should not, in trade or commerce, engage in the practice of exclusive dealing. By s.47(2), a corporation engaged in that practice if, inter alia, it supplied goods or services on the bases of exclusivity there specified. Other forms of exclusive dealing were identified by s.47(3) and (4). Section 47(5) was the equivalent of the present s.47(10), providing that s.47(1) did not apply to the practice of exclusive dealing constituted by a corporation engaging in conduct of a kind referred to in s.47(2) unless the engaging by the corporation in that conduct was likely to have the effect of substantially lessening competition.
The Act was substantially amended in 1977 after the Trade Practices Review Committee ("the Committee") had reported on the legislation to the then Minister for Business and Consumer Affairs in August 1976. In the explanatory memorandum accompanying the 1977 Bill, after mentioning that new provisions were to be introduced for the existing provisions s.45, s.46 and s.47, it was explained that "wherever effect upon competition is an element in the contravention, a single test" - " substantially lessening competition " - is now used (para.3) (emphasis supplied). This reform had its origin in one of the recommendations of the Committee which discussed the problem in these terms (at para.4.9):
"Criticism of sections 45 and 47 also went to the rules relating to the necessary effect upon competition, which is currently an ingredient of the prohibitions. Many of the submissions received by the Committee were critical of the differing threshold competition tests currently employed by the Act, namely the tests of sub-sections 45(3), 45(4), 47(5) and 92(2). Submissions in this area urged that the tests could be standardised to a much greater degree, eliminating much of the confusion flowing from a multiplicity of 'competitive effect' tests." (emphasis supplied)
It is clear, therefore, that whatever the formal structure of the legislation, its intended purpose was to provide that the substantial lessening of competition was to constitute an "element" or "ingredient" of any contravention.
True it is that the formal structure of s.47 would suggest that the subject matter of s.47(10) is that of a special defence or an exception to the general rule. But in determining where, as a matter of construction, the burden of proof lies, the intrinsic character of the legislation, as revealing its true effect, is more significant than its form (see Vines v. Djordjevitch (1955) 91 CLR 512 at p 519).
To adopt for present purposes the type of choice indicated in Vines - can it be said here, as a matter of subtance, that s.47(1) and (10) read together amount to a "statement of the complete factual situation which must be found to exist before anybody ... incurs a liability under the provision", (in which event the onus of proving the subtantial lessening of competition will lie upon the party asserting a contravention)? Or is it rather a case of the legislature laying down in s.47(1) "some principle of liability which it means to apply generally and then to provide for some special gounds of excuse, justification or exculpation depending upon new or additional facts" (ibid.) (in which event the onus of proving a defence under s.47(10) will lie upon the defendant to an action for contravention of the section)?
In my opinion, once it is concluded that the substantial lessening of competition is an "element" or "ingredient" of liability, it must follow that the present case falls into the former and not the latter of the two categories described in Vines (cf. Dowling v. Bowie (1952) 86 CLR 136 per Williams and Taylor, JJ. at pp 144-5 citing Jordan, C.J. in Ex parte Ferguson; Re Alexander (1944) 45 SR 64 at pp 66-7). In my view, therefore, the onus of establishing the matters specified in s.47(10) lies upon the party asserting a contravention of the statute.
It is true that such a result differs from the outcome in Guest. But the reasoning there may, I think, be distinguished for present purposes. In that instance, the Court was concerned with a provision, the former s.45, which was then rightly perceived (see the later decision in Quadramain Pty. Limited v. Sevastapol Investments Pty. Limited (1976) 133 CLR 390) to reflect the common law doctrine of restraint of trade. This may be contrasted with the s.47 in its present form which is a special statutory provision aimed, in terms of mischief, at anti-competitive conduct.
It should be added that the conclusion I have reached is supported by some recent dicta which, it must be said, have assumed the point without actually having to decide it (see Dandy Power Equipment Pty. Limited v. Mercury Marine Pty. Limited (1982) 44 ALR 173 per Smithers, J. at pp 192-3; Outboard Marine australia Pty. Limited v. Hecor Investments (No. 6) Pty. Limited (1982) 44 ALR per Bowen, C.J. and Fisher, J. at p 671; per Fitzgerald, J. at pp.673,677).
In the result, I make the following orders:
1. Order that para.20 of the defence and paras.3, 4 and 5 of the cross-claim be struck out.
2. Grant liberty to the respondents and cross-claimant to amend their defence and its cross-claim accordingly.
3. Order that the respondents and cross-claimant pay the applicants' costs of this application.
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